New Technologies Keep Us Strong

Technology has made steady, reliable power a necessity not only for individuals but for industry and governments as well.

Energy always has been something that Americans (and people in most other nations for that matter) consider part of our national security. We’ve sent troops halfway around the world to secure energy resources on more than one occasion. Most developed nations have done the same and will continue to do the same until energy security is less threatened.

There’s a saying: When you lose the Internet, it’s like 1979; when you lose power, it’s like 1879.

But given the frequency that major power systems have been going down around the world, 1879 is showing up more and more often.

About a year and a half ago, Japan lost its nuclear power plants, which generated 30 percent of the nation’s power. Its economy is still trying to claw its way back. There is public pressure to find an alternative to such heavy nuclear dependence, even though it will expose the country to more foreign imports of oil, natural gas and coal.

In early July, a swath of the mid-Atlantic was living in 1879 for a while. And it was ugly.

And, of course, there’s India, where nearly 670 million people lost power. Yes, 670 million people. That’s the entire United States going down and then more than another 200 million.

India’s Cautionary Tale

The Indian power grid is a patchwork grid similar to the U.S. grid. It’s old and the infrastructure was built for a bygone era when villages shared a television and landline phones were a luxury.

Obviously, as one of the top tech nations and one of the most vibrant emerging economies in the world, a rising standard of living has meant more people can afford more blenders, TVs, mobile phones, air conditioners, etc. But between generation and transmission, most of the money goes to generation because rebuilding the transmission system is a huge undertaking in any country.

Dominion Resources, Inc. (D), the utility for Virginia and some of West Virginia and North Carolina, said after the storm that hit in July that just to bury the above-ground lines to simply avoid trees tearing the distribution lines off poles would cost $1 million a mile.

And the company can’t necessarily pass those costs (some or all) along to consumers without getting approval from State regulators. Passing that cost along would be a very tough sell to consumers and businesses. We want these things but don’t necessarily want to pay for them.

But India is a bellwether for what could happen in the United States at any time. Imagine a modern industrial nation losing power to its entire grid for days. Imagine the damage to equipment and business. No stock markets or bond markets. Think of 9/11 all across the country, in every factory, in every house.

The problem in India could have been avoided entirely if certain available systems were in place and the operators acted more directly and authoritatively. Again, the system is only as good as its operators. And the politics in cutting off India’s bread basket were certainly a very difficult call. But in the end giving them what they wanted ultimately served only to deny them what they wanted.

Maybe just build a better grid?

Another U.S. Solution

While improving the U.S. grid (and those in many other nations for that matter) is a matter of necessity, there’s also another opportunity that has emerged in recent years.

New drilling technologies have made it possible to tap into massive amounts of natural gas that have been trapped under shale deposits. In the United States, these shale gas reserves are massive; they make the United States the Saudi Arabia of natural gas (see my past article on fracking for more).

And not only is that a transformative development for U.S. consumers and industry that goes a long way toward making America energy independent for decades to come, but it represents a huge opportunity to export this fuel to the rest of the world.

As noted above, Japan is buying new fuels, including natural gas, and pays four times what the market rate is in the United States. Europe is paying three times the U.S. rate. Its major supplier is Russia’s Gazprom, which is a less-than-ideal supplier.

The point is that there is global opportunity to export gas. The only way to export gas efficiently is to cool it until it liquefies. The only problem is that the United States has only a handful of liquefied natural gas (LNG) export ports. And there are only a few LNG shipping companies.

GasLog Ltd. (GLOG) owns a fleet of LNG-carrying vessels. And it’s currently one of the tightest in terms of the supply-and-demand shipping market.

GasLog has a solid slate of vessels that are booked under long-term contracts. It also has a number of new ships that are coming on line in the next two years and that will enable them to take advantage of the tight rate market that currently exists.

GasLog is talking about spinning off some of those vessels that are booked under long-term contracts as a master limited partnership (MLP). That would really unlock a lot of value for the company. Whether it makes that move, it’s a great company in this space.

Another one is Teekay LNG Partners LP. (TGP), which offers a really nice yield above 7 percent. The reason that yield is so high is that there’s really no contract risk per se; it doesn’t have much exposure to the near term bull market in contract prices which is why it’s kicking off such a nice yield.

A New Grid Strategy

For those who are bolder in their vision for new energy in the United States, look to buying some of the cutting-edge smart-grid companies.

High-temperature superconducting (HTSC) wire is not a silver bullet to a new grid, but it does have some significant advantages for a new grid. Many countries are looking at ways to build these HTSC systems into their existing grids and upgraded grids.

HTSC wires are to traditional power lines what fiber optic cable is to a copper telephone line. You could back up a small city on one buried HTSC cable. And because they have so much capacity, you can build in other smart systems to help keep the grid functioning and receive real time feedback, chart consumption trends, etc.

One of the pioneers in this field is American Superconductor Corporation (AMSC). The stock has been slammed in recent years because of its wind division. It had a deal with Sinovel, one of China’s largest wind companies, and then Sinovel walked, leaving AMSC short one gigantic client.

Now the company is going back to its roots and the HTSC side of the business until the global economy gets back on its feet. AMSC is split in two divisions, Gridtec and Windtec. I’ll let you figure out what the divisions do.

Revenues for the first quarter of fiscal 2012 were $28.7 million, which compares with $9.1 million for the first quarter of fiscal 2011. The year-over-year increase was driven by strong growth in the company’s wind and grid segments.

This is by no means a quick turnaround story, but if you have some long-term money that you aren’t counting on for your grandchildren, AMSC is a good buy under 7.

The second firm is Bruker Corporation (BRKR), a 50-year-old firm that’s a leading provider of high-performance scientific instruments and solutions for molecular and materials research, as well as for industrial and applied analysis.

While its instrumentation division is a compelling story unto itself, this company also has a HTSC division and is also a global player in this sector. Bruker Energy and SuperCon Division (BEST) is a leading global manufacturer and developer of HTSC wire products and devices.

In May, BEST announced a large-scale technology transfer contract for its Bruker HTS GmbH subsidiary to license and transfer know-how for second generation (2G) YBCO ceramic tape high temperature superconductors (HTS) to a subsidiary of the Russian state atomic energy corporation, Rosatom. The contract is valued at $25 million.

BEST is also very active in the U.K., Germany and South Korea. No doubt, the recent turmoil in Europe has hurt Bruker’s recent earnings. The company has lowered guidance for the rest of the year, so the stock is at reasonable levels.

Bear in mind, this isn’t a stock where you wait for its quarterly results. You check on this stock annually for the next few years and then decide whether things are working out. This is a long-term growth play that could return orders of magnitudes on your investment or leave you with a few pennies in your brokerage account. A high-risk/high-reward high tech proposition, Bruker is a buy below 15.50.

2 Uranium Stocks That Are Ripe For A Rebound

A few months ago, there was a report that a Japanese town recovering from last year’s tsunami-inflicted Fukushima nuclear disaster is teaming up with Toshiba Corp. to build several solar electricity plants which, combined, would be Japan’s largest solar facility.

The coastal town of Minami Soma plans to install 100 megawatts of solar, which would be about 2 percent of the 4.7 gigawatts of capacity at the now idle Fukushima Daiichi nuclear station 16 miles to the south.

If you recall, a huge earthquake triggered an even bigger tsunami that laid waste to northeastern Japan, including three aging nuclear reactors. Parts of Minami Soma were in the no-go zone following the meltdowns.

Following the Fukushima disaster, Japan shut down all of its 54 nuclear power stations.

But the lesson here isn’t really about how Japan has seen the light (pardon the pun) and is going to replace all its nukes with solar, geothermal and wind.

No, the hidden news peg in all this is that most people have put the disaster behind them and now are getting back to business as usual.

Whether the Japanese restart their nukes is immaterial. Nuclear energy is a clean fuel of the future for developing nations around the world and in particular, China and India.

That means big things for uranium producers and even bigger things for the biggest uranium player, Cameco Corp. (CCJ).

Emerging Markets Bring Growth

U.S. investors have been far too focused on nuclear’s old reputation, when it took forever to build a plant and then you were never sure how well it was built. Things have changed considerably since those days.

But the U.S. utilities and regulators are still having a hard time finding common ground. There’s only one new reactor under construction; and nine are in advanced stages of planning.

In China, however, there are 27 reactors under construction and 50 additional reactors in advanced stages of planning.

India has 20 reactors in six power plants with at least seven in planning mode. Its goal is to triple its nuclear power from 3 percent to 9 percent of overall electricity generation capacity in the next 25 years. By 2020, India’s installed nuclear power generation capacity will increase to 20,000 MW from about 4,800 MW today.

The International Atomic Energy Agency’s most realistic estimate is that 90 new nuclear plants will enter service around the world by 2030. Ten new nuclear plants went online over the past two years.

And plants abroad cost 70 percent to 80 percent less than they do in the U.S. I was at a conference a few years ago and began talking to a guy who worked as a nuclear engineer for Southern Company and then started his own business.

He had consulted on some Chinese nukes and was telling me how amazing it was to watch them put up a plant. They hit their deadlines and had little red tape to deal with, which meant they got to focus on the work.

Simply put, the growth story for nuclear power — much like the growth story for oil and natural gas demand — is centered in the emerging markets.

Reactors Under Construction WorldwideSource: World Nuclear Association

Uranium Is Heating Up

It’s no surprise share prices of most uranium producers plummeted in the immediate wake of the Fukushima. Since then, the group for the most part has traded sideways; investors have remained on the sideline, awaiting greater clarity on the impact of the accident on global nuclear demand growth.

Many countries announced a pause in the construction of new reactors and/or the beginning of comprehensive safety audits last March, a process that took time to complete. But recent announcements from China, Japan, India and the U.K. have affirmed that nuclear power’s future remains bright. Germany’s and Switzerland’s decisions to phase out their nuclear power programs shouldn’t damage the industry’s growth prospects.

While the uranium price is lower than it was immediately prior to Fukushima, it’s important to remember that it is at a higher level than in mid-2010, which was only six months before Fukushima.

The main things keeping a brake on uranium prices now are the current supply-demand balance and some residual uncertainty regarding Japanese reactor restarts and the issuance of new reactor licenses in China, which were suspended after the Fukushima accident.

It looks increasingly likely that Japan will begin to restart reactors. Local opposition to reactor restarts was overcome earlier this summer, and the government appears to be getting closer to a restart decision.

In China, some nuclear regulators have come out publicly over the course of the past few months saying that they will begin to issue new reactor licenses again. And at the beginning of June, the Chinese cabinet reportedly reconfirmed the country’s commitment to its nuclear program.

The 800-Pound Gorilla

Camecois the largest pure-play miner of yellowcake and is a must-own for investors interested in profiting from rising demand for uranium.

On May 1, Cameco reported a 43 percent surge in first-quarter profit to $131.8 million. During the first quarter, the company sold 8.1 million pounds of uranium at an average realized price of $49.40 per pound. That compared with sales of 6.1 million pounds at an average realized price of $48.60 per pound in the first three months of 2011. The company’s sales rose 22 percent to $562.3 million.

And Cameco has a strategy to double its production by 2018. To accomplish that, there may be some acquisitions in the company’s future. With prices flat-lined until demand picks up and smaller miners getting stretched over the past year, this may be the perfect time to snap up productive properties and eliminate some of the competition simultaneously.

Also, Cameco has a series of major projects under way. The largest is the long-delayed Cigar Lake mine in Canada. The company expects the facility to produce about 1 million pounds annually from the mine by 2013. The mine’s annual output could hit 5.6 million pounds by the latter half of the decade.

Cameco is in prime position to fuel the next generation of nuclear reactors and score some big gains in the process; it’s a buy up to 27.

A Local Hero

A smaller, more leveraged play is Vancouver, Canada-based Uranium Energy Corp. (UEC). All its operations are in the U.S., and it hopes to gather a bigger share of the U.S. market, since 95 percent of U.S. uranium is imported.

What’s more, 20 percent of U.S. electricity comes from nuclear power and the 55 million pounds of uranium consumed each year in the U.S., but only 4 million pounds of uranium are produced each year domestically. The U.S. is more dependent on foreign uranium than it is on foreign oil.

The biggest problem has been that uranium prices are so low that there’s little opportunity for profit. Miners need prices around $80 a pound to expand production and grow profits, but spot uranium prices are about $50 a pound, which is reason enough for UEC’s lackluster performance up to now.

UEC uses a method called in-situ recovery, which is the lowest-cost method of extraction. As its extraction costs are lower, any up-move in prices will be leveraged in the company’s performance.

And two factors are working in the company’s favor: Domestic demand may rise simply for economic security reasons; and if that doesn’t happen, demand overseas will soon begin to make up for it. Emerging economies are building nukes like crazy — not only China and India but South Korea and oil-rich nations like Saudi Arabia and the United Arab Emirates, as well as Iran. As oil gets dearer, it makes more sense to sell it than to consume it, especially if there are more efficient alternatives.

Either way, UEC is a leveraged way to play the rebirth of nuclear energy globally.

And something seems to be happening, because the stock is up almost 15 percent this week on no news. When flat-lined stocks rally that much with no explanation, there’s something going on that the smart money knows and can’t or won’t talk about it. UEC is a speculative buy below 3.75.

Finding Gold In A Tapped-Out Sector

I am GS Early, and I proudly took the helm as editor of Liberty Investor™ earlier this month.

My efforts are twofold.

The first, as the headline indicates above, is to find opportunities in sectors that have real merit but have been exploited by investors. Sometimes when there’s a land rush in a sector, everyone buys the same thing for the same reason, which means some stocks get overbought and some get overlooked. I’ll help you avoid the former and find the latter.

Second, I will search out and find “The Next Big Thing.” There is no end to writers offering to tell you about dividend paying stocks. But dividends for the sake of dividends should make up only a piece of your portfolio. Growth is a crucial component. And most stocks that offer growth and income aren’t the growth stocks I’m interested in. I want pure, full-fledged growth stocks in dynamic sectors.

Oh, and one other thing. Don’t pay attention to me.

Well, don’t pay attention to just me. Make up your own mind. Hopefully, this is a starting point — not an ending point — in your investing process. And always feel free to contact me if you have any questions or comments.

Remember: Right before the dot-com revolution went down in flames, brokers, “experts” and talking heads proclaimed that “growth is the new income” and “if the stock doesn’t have a triple-digit price-to-earnings ratio, it isn’t worth buying.” That didn’t work out so well.

Nowadays, the opposite is true. Every investor is flocking to dividends, heeding the call that this time around is different (again) and “income is the new growth.” Don’t listen to such advice. A diversified portfolio is as important as ever, and good long-term growth opportunities are crucial to a successful portfolio.

I’ve been at this a while — more than 20 years, actually. I’ve worked with the famous, the brilliant and the infamous.

The one thing I’ve learned in my time is: Don’t listen to brokers, golf buddies or friends of friends; do your own work. As one investor told me, “I learned I can lose money as well as my broker, so why should I let him do it?” Whether it’s your sister’s kid or a guy with whom you’ve worked for years, if you let him take control of your portfolio, your destiny is no longer in your hands. The last thing we want is to cede control of our money to a government, an organization or another individual.

I assume that’s why you’re reading.

Because I wrote this for the maiden issue, I wanted to talk about one of the biggest growth industries in the world — one that is not likely go away in the next century. The funny thing is that most investors have run away from this sector in terror, leaving incredible bargains and supercharged growth opportunities on the table.

Look at this chart:

That’s the spending differential in this sector between the United States and its closest peers. As a matter of fact, the United States outspends its closest 19 fellow nations combined.

Is it healthcare? Social Security? Education?

No, it’s defense.

And even with this enormous amount of spending, it represents only about 2.5 percent of per capita gross domestic product. China’s spending on defense per capita GDP is almost double that amount.

The fact is that despite the handwringing in Washington, D.C. (I was born and bred “inside the Beltway”), defense is fine.

  • In early spring, the House passed a bill that essentially overrides any consequences of looming sequestration for major defense initiatives.
  • Republicans have been passing defense spending budget requests that are higher than the Department of Defense has even requested.
  • Foreign sales are doing very well to make up for slowing domestic spending.

Granted, there are some big shifts from a war-time military to one on stand-down. But there is great opportunity in this beaten-down sector.

And one of the best places to look is in C4ISR. That stands for Command, Control, Communications, Intelligence, Surveillance, and Reconnaissance.

You’ve heard about all the drone strikes? C4ISR. The intel that went into Osama bin Laden’s final roundup? C4ISR. The technology that keeps our troops informed and aware in theater? C4ISR.

With the amount of spending the defense sector gets, it’s the new breeding ground for commercialized technologies. A handful of decades ago, the space program was where we found technologies that could transition into the civilian marketplace. Today, that’s the new role of defense.

When it comes to robotics, imaging, materials and even clean technologies, the U.S. military is on the cutting edge. And it continues to grow its spending in this sector.

Here’s an excerpt from a recently released C4ISR report from DefenceTalk.com, a global defense, aerospace and military site:

The US recorded budget cuts in 2011, a trend which is forecast to continue going forward. Despite this, North America is expected to account for the largest share of the total global C2/C4ISR market comprising 52% over the forecast period. Asia and Europe are also expected to account for a significant portion of the total global C2/C4ISR market over the forecast period, with respective shares of 20% and 18%. This will be largely driven by the efforts of countries such as India, China, the UK and Russia to modernize their armed forces. Latin America, Middle East and Africa are forecast to account for respective shares of 6%, 2% and 2%.

Global spending on C2/C4ISR systems is expected to remain robust over the forecast period, primarily due to the increased importance of C2/C4ISR systems in modern or fourth-generation warfare.

Top C4ISR Stocks

I’ve always been a fan of second- and third-tier defense stocks because they offer the most upside potential. Either they’ll grow rapidly, or they’ll be acquired at big premiums.

But right now, many of them have been beaten down because revenues have slowed. It’s a great time to establish positions.

Without further ado, here are a handful of “New Defense” stocks to watch:

AeroVironment (AVAV): The premier maker of ultralight, unmanned aerial vehicles (UAVs). It also has a division that is one of the country’s leading makers of filling stations for electric vehicles. This combination of technologies fit into the modern military, homeland security and energy independence megatrends.

FLIR Systems (FLIR): “Forward looking infrared” is the term from which the name of this company is derived. Basically, this is one of the leading makers of optics that can see through anything. And in C4ISR — whether it’s in Yemen, over the Mexican Border, on ships or in your back 40 — if you need vision 24/7, FLIR provides the eyes.

QinetiQ (QNTQY): Pronounced “kinetic,” this U.K.-based defense firm was Ian Fleming’s inspiration for the Q character and labs in the James Bond novels. The cutting-edge defense and intelligence company has extended its reach into the U.S. market with some very powerful connections. Robotics and cybersecurity are its passport to profits on U.S. shores.

iRobot (IRBT): A pure play on robotics. Don’t be fooled by its Roomba® vacuum or other automated household devices. The value here is in the programming and its military robots that keep troops out of harm’s way. This company is a major force that has its best years ahead of it. It’s just beginning to tap the homeland security and naval/marine sectors.

Rockwell Collins (COL): In one iteration or another, this firm has been around for a long time, and it isn’t going anywhere anytime soon. It remains a key supplier of the world’s major aerospace and defense companies. It’s leading the charge now on the 21st century soldier, networking the battle space and providing crucial C4ISR systems.

–GS Early